The Subprime Virus

Reckless Credit, Regulatory Failure, and Next Steps

Kathleen C. Engel and Patricia A. McCoy

A lively, sharply reasoned account of the toxic lending practices that produced the recent economic collapse

A challenge to the myth that the subprime crisis was a "perfect storm" that could not be foreseen, the book shows a unique understanding of the regulatory failure on the federal government's part to thwart it

As legal experts, the authors' analysis and solutions are grounded in a rich understanding of how the law can be used to prevent a repeat crisis

The Subprime Virus

Reckless Credit, Regulatory Failure, and Next Steps

Kathleen C. Engel and Patricia A. McCoy

Description

The subprime crisis shook the American economy to its core. How did it happen? Where was the government? Did anyone see the crisis coming? Will the new financial reforms avoid a repeat performance?

In this lively new book, Kathleen C. Engel and Patricia A. McCoy answer these questions as they tell the story behind the subprime crisis. The authors, experts in the law and the economics of financial regulation and consumer lending, offer a sharply reasoned, but accessible account of the actions that produced the greatest economic collapse since the Great Depression. The Subprime Virus reveals how consumer abuses in a once obscure corner of the home mortgage market led to the near meltdown of the world's financial system. The authors also delve into the roles of federal banking and securities regulators, who knew of lenders' hazardous mortgages and of Wall Street's addiction to high stakes financing, but did nothing until the crisis erupted. This is the first book to offer a comprehensive description of the government's failure to act and to analyze the financial reform legislation of 2010.

Blending expert analysis, vivid examples, and clear prose, Engel and McCoy offer an informed portrait of the political and financial failures that led to the crisis. Equally important, they show how we can draw lessons from the crisis to inform the building of a new, more stable, prosperous, and just financial order.

The Subprime Virus

Reckless Credit, Regulatory Failure, and Next Steps

Kathleen C. Engel and Patricia A. McCoy

Author Information

Kathleen Engel, the Associate Dean for Intellectual Life and Professor of Law at Suffolk University Law School, is a national authority on mortgage finance and regulation, subprime and predatory lending, and housing discrimination. Professor Engel's research on financial services markets and the laws that regulate them regularly catches the attention of the press and she presents her research in academic, banking, and policy forums throughout the country and around the world.

Patricia A. McCoy, an expert on financial services regulation, is the Connecticut Mutual Professor of Law and Director of the Insurance Law Center at the University of Connecticut. Professor McCoy analyzes consumer protection, moral hazard, and systemic risk through the lens of law, economics, and empirical methods. Her work on the subprime market has garnered national press attention and repeated invitations to testify before Congress.

The Subprime Virus

Reckless Credit, Regulatory Failure, and Next Steps

Kathleen C. Engel and Patricia A. McCoy

Reviews and Awards

Winner of the 2010 American College of Consumer Financial Services Lawyers Book Award!

"A valuable one-stop resource.... In the recent glut of titles on the subprime-mortgage crisis, this book fills the gap between watered-down pop accounts and esoteric economic analyses."--Library Journal

"An excellent book."--Steven Davidoff, The New York Times

"Masterful and devastating. From the subprime neighborhoods to Wall Street and Washington, Engel and McCoy trace the fraud, incompetence, greed and negligence that wrecked the world economy, the American financial system, and the wealth of millions. This book should be on every prosecutor's must-read list."--James K. Galbraith, author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

"The critical and oft-neglected fact of the [recent economic] crisis rests in the deep connections between the worlds of consumer risk and systemic risk. These connections are both the central metaphor and the driving analytic framework for a perceptive new book by legal scholars Kathleen Engel and Patricia McCoy.... [They] have provided...the best account of the mortgage market roots of our financial collapse....it redirects attention and analysis to consumers--that is, the middle and lower classes. The authors focus some badly needed attention on the human carnage wrought by the collapse of the mortgage market itself."--Daniel Carpenter, Democracy Today

"Many excellent books on the bubble and ensuing [financial] crisis have appeared.... It was to The Subprime Crisis, however, that the American College of Consumer Financial Services Lawyers gave its book award, most likely because of this book's unique combination of detail, coverage, and style. This may be the only book that looks at the entire business of residential lending, financial regulation, and corrective legislation."--Business Law Today

"Like time lapse photography, Engel and McCoy demonstrate in bold relief how greed and ideology combined to enable the subprime crisis to buckle the knees of the American and global economies. Their meticulously documented and lively account of how questionable retail lending practices fed an out-of-control Wall Street money machine suggests there's plenty of blame to go around. However, the book reinforced my personal view that the regulators could have nipped this crisis in the bud, and that their bottom line message is that policymakers whose sacred trust was to protect the public interest, failed miserably in their jobs. In addition to a readily understandable story of economic contagion, The Subprime Virus is an outstanding example of how industry capture can corrupt and render ineffective our regulatory institutions."--Michael A. Stegman, Ph.D., Director of Policy and Housing, The John D. and Catherine T. MacArthur Foundation

"Kathleen Engel and Patricia McCoy were writing about the perils of subprime lending and predicting the failure of the subprime market well before 2007. In this book, Professors Engel and McCoy explain the wide-spread regulatory failures which allowed the 'subprime virus' to grow and fester. Their policy recommendations and prescriptions for regulatory reform are lucid and common-sense solutions designed to prevent a recurrence of the reckless lending which caused the subprime virus. Government officials, academics, and anyone with an interest in preventing another subprime crisis should take heed."--Steven M. Davidoff, Professor of Law, The Ohio State University

"Kathleen Engel and Patricia McCoy deserve tremendous credit for being amongst the first to identify the problems of subprime lending and the risks inherent in financing ever growing numbers of low quality mortgages through asset securitization. Nearly a decade ago, they were prescient in foreseeing the toxic potential of combining predatory lending with capital market financing. In this insightful new volume, McCoy and Engel retrace the battles they waged against unscrupulous lending practices and the unwillingness of regulatory authorities to heed their warnings. In so doing, they lay bear the roots of the subprime crisis and offer a host of sensible reform proposals. This time, one can only hope, public authorities will listen."--Howell E. Jackson, James S. Reid Jr. Professor of Law, Harvard Law School